On 12 March the House of Lords ruled in Norris v Government of the USA that secret price-fixing in itself is not capable of being a criminal conspiracy to defraud. The Lords also dealt with the same point in connection with the prosecution by the Serious Fraud Office of generic drugs companies alleged to have engaged in cartel behaviour.
The Norris judgment has significant implications for other UK executives at risk of extradition to the US for price-fixing. It also raises the question of whether companies can in future face criminal charges for breaches of competition law.
During the 1990s Ian Norris was a senior employee at Morgan Crucible and was latterly the company’s CEO. He was indicted in 2004 by a Federal Grand Jury in the Eastern District of Pennsylvania on four charges, including price-fixing contrary to the US Sherman Antitrust Act for activities relating to the pricing of carbon products between 1989 and 2000.
Since then Norris has been resisting extradition to the US, primarily on the basis that at the relevant time it was not a criminal offence in the UK to engage in cartel activity. Under the Extradition Act 2003, the US had to show that it was, and because the statutory cartel offence under Section 188 of the Enterprise Act 2002 had not been enacted at the time, the only criminal offence that Norris’s alleged activities might have constituted was common law conspiracy to defraud.
Norris in essence argued that the common law recognised a right to enter into cartels, which was curtailed only by the civil law relating to restrictive trade practices. The House of Lords agreed with Norris. It held that price-fixing before the Enterprise Act had never been regarded as a crime (against undertakings or individuals) and in any event, to extend conspiracy to defraud to cover these circumstances would breach the provisions relating to legal certainty under Article 7 of the European Convention on Human Rights.
The decision is obviously of great significance to Norris’s case, as it prevents the US from extraditing him on the basis of a charge of price-fixing, although he may still be extradited to face other charges. Its wider significance to individuals involved in price-fixing is limited to those cases where the conduct occurred before 2003.
The position in relation to corporate entities is more interesting. As a result of Norris, a company can only have criminal liability for cartel activity if acts of deception can also be proven. The company would have to be charged with, for example, a conspiracy to defraud by deception or misrepresentation rather than a conspiracy to defraud by secret price-fixing.
However, in order to charge a company with conspiracy to defraud, prosecutors would also have to identify the individual director through which the company acted and who would be liable. That individual should be charged with the statutory offence for cartel activity following the introduction of the Enterprise Act rather than the common law offence of conspiracy to defraud (in the absence of good reasons to the contrary). It does not appear to be open to a prosecutor to charge an individual with the Section 188 offence (which has a requirement of dishonesty, but not intention, to defraud) while concurrently charging the individual’s employer with conspiracy to defraud.
In the new world of criminal liability for individuals who engage in serious anticompetitive behaviour, it seems that punishment of companies will remain the preserve of the competition, rather than criminal, authorities.
Peter Scott was assisted in this article by senior associate Adam Vause